Guess' : GUESS INC Management's Discussion and Analysis of Financial Condition and Results of Operations. (form 10-K)

General

Unless the context indicates otherwise, when we refer to "we," "us," "our" or
the "Company" in this Form 10­K, we are referring to Guess?, Inc. and its
subsidiaries on a consolidated basis.
Recent Developments
The COVID-19 pandemic is having a significant negative impact on the Company's
financial performance. The pandemic is ongoing and dynamic in nature and, to
date, the Company has experienced temporary closures in key regions globally,
along with other major retailers. For example, the Company announced the
temporary closure of its retail stores in the United States and Canada as a
result of the COVID-19 pandemic, following similar temporary closures of
Guess-operated stores that are currently in place in a number of countries in
Europe. In Asia, where store closures related to COVID-19 began, most of the
Guess-operated stores have reopened, although to significantly lower traffic.
The Company's e-commerce sites currently remain open in all regions.  In
addition, retail stores and e-commerce sites that are open have and continue to
experience significant reductions in traffic and therefore, revenue. We are
unable to determine with any degree of accuracy the length and severity of the
crisis and we do expect it will have a material impact on our consolidated
financial position, consolidated results of operations, and consolidated cash
flows in the first quarter of fiscal 2021. The extent and duration of the crisis
remains uncertain and may impact consumer purchasing activity if disruptions
continue throughout the year which could continue to impact us.
Due to the developing situation, the results of the first quarter ending May 2,
2020 and the full fiscal year ending January 30, 2021 could be impacted in ways
we are not able to predict today, including, but not limited to, non-cash
write-downs and impairments; unrealized gains or losses related to investments;
foreign currency fluctuations; and collections of accounts receivables.
During March 2020, as a precautionary measure to ensure financial flexibility
and maintain maximum liquidity in response to the COVID-19 pandemic, the Company
drew down approximately $212 million under certain of its credit facilities in
the U.S., Canada and Europe. In addition, in March 2020, we announced that, in
light of uncertainty surrounding the COVID-19 pandemic, we had decided to
postpone our decision related to the potential declaration of a quarterly cash
dividend for the first quarter of fiscal 2021.
The Company is also implementing a number of other measures to help mitigate the
operating and financial impact of the pandemic, including: (i) furloughing all
of its U.S. and Canada store associates and significant portions of its U.S. and
Canada corporate and distribution center associates starting April 2, 2020; (ii)
implementing temporary tiered salary reductions for management level corporate
employees, including its executive officers; (iii) deferring annual merit
increases; (iv) executing substantial reductions in expenses, store occupancy
costs, capital expenditures and overall costs, including through reduced
inventory purchases; and (v) working globally with country management teams to
maximize the Company's participation in all eligible government or other
initiatives available to businesses or employees impacted by the COVID-19
pandemic.
Business Segments
The Company's businesses are grouped into five reportable segments for
management and internal financial reporting purposes: Americas Retail, Americas
Wholesale, Europe, Asia and Licensing. Management evaluates segment performance
based primarily on revenues and earnings (loss) from operations before corporate
performance-based compensation costs, asset impairment charges, net gains
(losses) from lease terminations, restructuring charges and certain
non-recurring credits (charges), if any. The Americas Retail segment includes
the Company's retail and e-commerce operations in the Americas. The Americas
Wholesale segment includes the Company's wholesale operations in the Americas.
The Europe segment includes the Company's retail, e-commerce and wholesale
operations in Europe and the Middle East. The Asia segment includes the
Company's retail, e-commerce and wholesale operations in Asia and the Pacific.
The Licensing segment includes the worldwide licensing operations of the
Company. The business segment operating results exclude corporate overhead
costs, which consist of shared costs of the organization, asset impairment
charges, net gains (losses) on lease terminations, restructuring charges and
certain non-recurring credits (charges), if any. Corporate overhead costs are
presented separately and generally include, among other things, the following
unallocated corporate costs: accounting and finance, executive compensation,
corporate performance-based compensation, facilities, global advertising and
marketing, human resources, information technology and legal.


                                       33
--------------------------------------------------------------------------------



Information regarding these segments is summarized in "Part IV. Financial
Statements - Note 18 - Segment Information" in this Form 10-K.
Products
We derive our net revenue from the sale of GUESS?, G by GUESS (GbG), GUESS Kids
and MARCIANO apparel and our licensees' products through our worldwide network
of directly-operated and licensed retail stores, wholesale customers and
distributors, as well as our online sites. We also derive royalty revenue from
worldwide licensing activities.
Foreign Currency Volatility
Since the majority of our international operations are conducted in currencies
other than the U.S. dollar (primarily the British pound, Canadian dollar,
Chinese yuan, euro, Japanese yen, Korean won, Mexican peso, Polish zloty,
Russian rouble and Turkish lira), currency fluctuations can have a significant
impact on the translation of our international revenues and earnings (loss) into
U.S. dollar amounts.
Some of our transactions that occur primarily in Europe, Canada, South Korea,
China and Mexico are denominated in U.S. dollars, Swiss francs, British pounds
and Russian roubles, exposing them to exchange rate fluctuations when these
transactions (such as inventory purchases or periodic lease payments) are
converted to their functional currencies. As a result, fluctuations in exchange
rates can impact the operating margins of our foreign operations and reported
earnings (loss), and are largely dependent on the transaction timing and
magnitude during the period that the currency fluctuates. In addition, there are
certain real estate leases which are denominated in a currency other than the
functional currency of the respective entity that entered into the agreement
(primarily Swiss francs, Russian roubles and Polish zloty). As a result, the
Company may be exposed to volatility related to unrealized gains or losses on
the translation of present value of future lease payment obligations when
translated at the exchange rate as of a reporting period-end. When these foreign
exchange rates weaken versus the U.S. dollar at the time the respective U.S.
dollar denominated payment is made relative to the payments made in the
comparable period, our product margins could be unfavorably impacted.
During fiscal 2020, the average U.S. dollar rate was stronger against the
British pound, Canadian dollar, Chinese yuan, euro, Korean won, Polish zloty,
Russian rouble and Turkish lira and weaker against the Japanese yen and Mexican
peso compared to the average rate in fiscal 2019. This had an overall
unfavorable impact on the translation of our international revenues and earnings
from operations during fiscal 2020 compared to the prior year.
If the U.S. dollar strengthens relative to the respective fiscal 2020 foreign
exchange rates, foreign exchange could negatively impact our revenues and
operating results, as well as our international cash and other balance sheet
items during fiscal 2021, particularly in Canada, Europe (primarily the euro,
British pound, Turkish lira and Russian rouble) and Mexico. Alternatively, if
the U.S. dollar weakens relative to the respective fiscal 2020 foreign exchange
rates, our revenues and operating results, as well as our other cash balance
sheet items, could be positively impacted by foreign currency fluctuations
during fiscal 2021, particularly in these regions.
The Company enters into derivative financial instruments to offset some but not
all of the exchange risk on foreign currency transactions. For additional
discussion regarding our exposure to foreign currency risk, forward contracts
designated as hedging instruments and forward contracts not designated as
hedging instruments, refer to "Part II, Item 7A. Quantitative and Qualitative
Disclosures About Market Risk."
Strategy
In December 2019, Carlos Alberini shared his strategic vision and implementation
plan for execution which includes the identification of several key priorities
to drive revenue and operating profit growth over the next five years. These
priorities are: (i) brand relevancy; (ii) customer centricity; (iii) global
footprint; (iv) product excellence; and (v) functional capabilities; each as
further described below:
Brand Relevancy. We plan to optimize our brand architecture to be relevant with
our three target consumer groups: Heritage, Millennials, and Generation Z. We
will continue to execute celebrity and influencer partnerships and
collaborations, as we believe that they are critical to engage more effectively
with a younger and broader audience.
Customer Centricity. We intend to place the customer at the center of everything
we do. We plan to implement processes and platforms to provide our customers
with a seamless omni-channel experience.


                                       34
--------------------------------------------------------------------------------



Global Footprint. We will continue to expand the reach of our brands by
optimizing the productivity and profitability of our current footprint and
expanding our distribution channels.
Product Excellence. We will extend our product offering to provide our customers
with products for the different occasions of their lifestyles. We will seek to
better address local product needs.
Functional Capabilities. We expect to drive material operational improvements in
the next five years to leverage and support our global business more
effectively, primarily in the areas of logistics, sourcing, product development
and production, inventory management, and overall infrastructure.
Capital Allocation
We plan to continue to prioritize capital allocation toward investments that
support growth and infrastructure, while remaining highly disciplined in the way
we allocate capital across projects, including new store development, store
remodels, technology investments and others. When we prioritize investments, we
will focus on their strategic significance and their return on invested capital
expectations. We also plan to manage product buys and inventory ownership
rigorously and optimize overall working capital management consistently.
During the first quarter of fiscal 2020, the Company announced that its Board of
Directors reduced the future quarterly cash dividends that may be paid to
holders of the Company's common stock, when, as and if any such dividend is
declared by the Company's Board of Directors, from $0.225 per share to $0.1125
per share to redeploy capital and return incremental value to shareholders
through share repurchases. In April 2019, the Company issued $300 million
aggregate principal amount of 2.00% convertible senior notes due 2024 in a
private offering. During the first quarter of fiscal 2020, the Company used $170
million of proceeds from its convertible senior notes to enter into an
accelerated share repurchase program ("ASR Contract"). The Company also
repurchased shares of its common stock in open market and privately negotiated
transactions totaling $118.1 million during fiscal 2020.
Comparable Store Sales
The Company reports National Retail Federation calendar comparable store sales
on a quarterly basis for our retail businesses which include the combined
results from our brick-and-mortar retail stores and our e-commerce sites. We
also separately report the impact of e-commerce sales on our comparable store
sales metric. As a result of our omni-channel strategy, our e-commerce business
has become strongly intertwined with our brick-and-mortar retail store business.
Therefore, we believe that the inclusion of e-commerce sales in our comparable
store sales metric provides a more meaningful representation of our retail
results.
Sales from our brick-and-mortar retail stores include purchases that are
initiated, paid for and fulfilled at our retail stores and directly operated
concessions as well as merchandise that is reserved online but paid for and
picked-up at our retail stores. Sales from our e-commerce sites include
purchases that are initiated and paid for online and shipped from either our
distribution centers or our retail stores as well as purchases that are
initiated in a retail store, but due to inventory availability at the retail
store, are ordered and paid for online and shipped from our distribution centers
or picked-up from a different retail store.
Store sales are considered comparable after the store has been open for 13 full
fiscal months. If a store remodel results in a square footage change of more
than 15%, or involves a relocation or a change in store concept, the store sales
are removed from the comparable store base until the store has been opened at
its new size, in its new location or under its new concept for 13 full fiscal
months. Stores that are permanently closed or temporarily closed for more than
seven days in any fiscal month are excluded from the calculation in the fiscal
month that they are closed. E-commerce sales are considered comparable after the
online site has been operational in a country for 13 full fiscal months and
exclude any related revenue from shipping fees. These criteria are consistent
with the metric used by management for internal reporting and analysis to
measure performance of the store or online sites. Definitions and calculations
of comparable store sales used by the Company may differ from similarly titled
measures reported by other companies.


                                       35
--------------------------------------------------------------------------------



Executive Summary
Overview
Net earnings attributable to Guess?, Inc. were $96.0 million, or diluted
earnings of $1.33 per common share, for fiscal 2020, compared to net earnings
attributable to Guess?, Inc. of $14.1 million, or diluted earnings of $0.16 per
common share for fiscal 2019.
During fiscal 2020, the Company recognized $10.0 million of asset impairment
charges; a net credit of $0.9 million of certain professional service and legal
fees and related costs; $0.4 million of CEO separation charges and $7.6 million
of amortization of debt discount related to the Company's convertible senior
notes (or a combined $9.1 million after considering the related tax benefit of
these adjustments as well as the impact from changes in the tax law on deferred
taxes in certain tax jurisdictions, net tax settlements and adjustments to
specific uncertain tax positions totaling $8.1 million), or an unfavorable $0.12
per share impact. Excluding the impact of these items, adjusted net earnings
attributable to Guess?, Inc. were $105.0 million and adjusted diluted earnings
were $1.45 per common share for fiscal 2020. During fiscal 2019, the Company
recognized €39.8 million ($45.6 million) related to a fine imposed by the
European Commission; $6.9 million of asset impairment charges; $0.5 million of
net gains on lease terminations; $6.1 million of certain professional service
and legal fees and related costs, $5.2 million of CEO separation charges and
$6.3 million in total income tax charges related to the enactment of the Tax
Reform (or a combined $66.3 million after considering the related tax benefit of
$3.4 million), or an unfavorable $0.82 per share impact. Excluding the impact of
these items, adjusted net earnings attributable to Guess?, Inc. were $80.4
million and adjusted diluted earnings were $0.98 per common share for fiscal
2019. References to financial results excluding the impact of these items are
non-GAAP measures and are addressed below under "Non-GAAP Measures."
Highlights of the Company's performance for fiscal 2020 compared to the prior
year are presented below, followed by a more comprehensive discussion under
"Results of Operations":
Operations
•         Total net revenue increased 2.6% to $2.68 billion for fiscal 2020,

compared to $2.61 billion in the prior year. In constant currency, net

revenue increased by 5.4%.

• Gross margin (gross profit as a percentage of total net revenue)

          increased 190 basis points to 37.9% for fiscal 2020, compared to 36.0%
          in the prior year.

• Selling, general and administrative ("SG&A") expenses as a percentage

          of total net revenue ("SG&A rate") increased 20 basis points to 32.2%
          for fiscal 2020, compared to 32.0% in the prior year. SG&A expenses
          increased 3.6% to $865.1 million for fiscal 2020, compared to $835.3
          million in the prior year.


•         During fiscal 2019, the Company recognized charges of €39.8 million
          ($45.6 million) for a fine imposed by the European Commission related
          to alleged violations of European Union competition rules by the
          Company. The Company paid the full amount of the fine during the first
          quarter of fiscal 2020.

• During fiscal 2020, the Company recognized asset impairment charges of

$10.0 million, compared to $6.9 million in the prior year.


•         During fiscal 2019, the Company recognized net gains on lease
          terminations of $0.5 million.

• Operating margin increased 330 basis points to 5.3% for fiscal 2020,

compared to 2.0% in the prior year. The European Commission fine

unfavorably impacted operating margin by 170 basis points during fiscal

2019. Lower expenses related to certain professional service and legal

fees and related (credits) costs recorded during fiscal 2020 favorably

          impacted operating margin by 30 basis points compared to the prior
          year. Lower CEO separation charges recorded during fiscal 2020
          favorably impacted operating margin by 20 basis points compared to the

prior year. Higher asset impairment charges recorded during fiscal 2020

          unfavorably impacted operating margin by 10 basis points compared to
          the prior year. Earnings from operations increased 169.4% to $140.7
          million for fiscal 2020, compared to $52.2 million in the prior year.


•         Other expense, net (including interest income and expense) totaled
          $16.9 million for fiscal 2020, compared to $5.5 million in the prior
          year.




                                       36

--------------------------------------------------------------------------------

•         The effective income tax rate decreased to 18.2% for fiscal 2020,
          compared to 63.2% in the prior year. During fiscal 2019, the Company
          revised the provisional amounts previously recorded related to the
          impact of the Tax Reform and recorded income tax charges totaling $6.3
          million.


Key Balance Sheet Accounts
•         The Company had $284.6 million in cash and cash equivalents and $0.2
          million in restricted cash as of February 1, 2020, compared to $210.5

million in cash and cash equivalents and $0.5 million in restricted

          cash at February 2, 2019.


•               During fiscal 2019, the Company recognized charges of €39.8
                million ($45.6 million) for a fine imposed by the European
                Commission related to alleged violations of European Union
                competition rules by the Company. The Company paid the full
                amount of the fine during the first quarter of fiscal 2020.


•               In April 2019, the Company issued $300 million aggregate
                principal amount of 2.00% convertible senior notes due 2024 in a
                private offering, for which it received total cash proceeds of
                $296.2 million, net of initial purchasers' discounts and
                commissions and offering costs of $3.8 million. In connection
                with the issuance of these notes, the Company (i) entered into
                convertible note hedge transactions for which it paid an
                aggregate $61.0 million and (ii) sold warrants for which it
                received aggregate proceeds of $28.1 million. These transactions
                are intended to reduce the potential dilution with respect to the
                Company's common stock upon conversion of the notes and/or offset
                any cash payments the Company may be required to make in excess
                of the principal amount of the converted notes.


•               During fiscal 2020, the Company used $170 million of proceeds
                from its convertible senior notes to enter into an ASR Contract,
                pursuant to which it received a total of approximately 10.6
                million shares. During fiscal 2020, the Company also repurchased
                approximately 6.1 million shares of its common stock in open
                market and privately negotiated transactions totaling $118.1
                million (including commissions). When combined, these
                transactions resulted in the Company investing $288.1 million to
                repurchase approximately 16.7 million of its common shares in
                fiscal 2020. During fiscal 2019, the Company invested $17.6
                million to repurchase approximately 1.1 million of its common
                shares. The Company also paid an additional $6.0 million for
                shares that were repurchased during the fourth quarter of fiscal
                2018 but were settled during the first quarter of fiscal 2019.


•               The Company, through its subsidiaries in Europe and China,
                maintains short-term committed and uncommitted borrowing
                agreements primarily for working capital purposes. The Company
                had $4.0 million in outstanding borrowings as of February 1, 2020
                and no outstanding borrowings under these agreements at
                February 2, 2019.

• Accounts receivable consists of trade receivables relating primarily to

the Company's wholesale business in Europe and, to a lesser extent, to

its wholesale businesses in Asia and the Americas, royalty receivables

relating to its licensing operations, credit card and retail concession

          receivables related to its retail businesses and certain other
          receivables. Accounts receivable increased by $5.3 million, or 1.6%, to
          $327.3 million as of February 1, 2020, compared to $322.0 million at

February 2, 2019. On a constant currency basis, accounts receivable

increased by $14.7 million, or 4.6%.

• Inventory decreased by $75.8 million, or 16.2%, to $393.1 million as of

February 1, 2020, from $468.9 million at February 2, 2019. On a
          constant currency basis, inventory decreased by $67.2 million, or
          14.3%.


Global Store Count
In fiscal 2020, together with our partners, we opened 102 new stores worldwide,
consisting of 57 stores in Europe and the Middle East, 26 stores in Asia and the
Pacific, ten stores in Central and South America, seven stores in the U.S and
two stores in Canada. Together with our partners, we closed 92 stores worldwide,
consisting of 53 stores in Asia and the Pacific, 15 stores in the U.S., 12
stores in Europe and the Middle East, 11 stores in Canada and one store in
Central and South America.


                                       37
--------------------------------------------------------------------------------



We ended fiscal 2020 with 1,729 stores and 394 concessions worldwide, comprised
as follows:
                                            Stores                              Concessions
                                           Directly     Partner                  Directly     Partner
Region                          Total      Operated     Operated      Total      Operated     Operated
United States                     282          280            2           1            -            1
Canada                             80           80            -           -            -            -
Central and South America         113           73           40          27           27            -
Total Americas                    475          433           42          28           27            1
Europe and the Middle East        745          517          228          39           39            -
Asia and the Pacific              509          219          290         327          117          210
Total                           1,729        1,169          560         394          183          211


Of the total 1,729 stores, 1,420 were GUESS? stores, 197 were GUESS? Accessories
stores, 69 were G by GUESS (GbG) stores and 43 were MARCIANO stores.
Results of Operations
The following table sets forth actual operating results for the fiscal years
2020 and 2019 as a percentage of net revenue:

                                                              Years Ended
                                                      February 1,    February 2,
                                                          2020           2019
Product sales                                               96.8 %         96.8 %
Net royalties                                                3.2            3.2
Net revenue                                                100.0          100.0
Cost of product sales                                       62.1           64.0
Gross profit                                                37.9           36.0
Selling, general and administrative expenses                32.2           32.0
European Commission fine                                       -            1.7
Asset impairment charges                                     0.4            0.3
Net gains on lease terminations                                -           (0.0 )
Earnings from operations                                     5.3            2.0
Interest expense                                            (0.6 )         (0.1 )
Interest income                                              0.1            0.2
Other income (expense), net                                 (0.2 )         (0.3 )
Earnings before income tax expense                           4.6            1.8
Income tax expense                                           0.8            1.1
Net earnings                                                 3.8            0.7
Net earnings attributable to noncontrolling interests        0.2            

0.2

Net earnings attributable to Guess?, Inc.                    3.6 %          

0.5 %

Fiscal 2020 Compared to Fiscal 2019
Consolidated Results
Net Revenue.  Net revenue increased by $68.4 million, or 2.6%, to $2.68 billion
for fiscal 2020, compared to $2.61 billion in fiscal 2019. In constant currency,
net revenue increased by 5.4% as currency translation fluctuations relating to
our foreign operations unfavorably impacted net revenue by $72.2 million
compared to the prior year. The increase in revenue was driven primarily by
higher European wholesale shipments and, to a lesser extent, retail expansion in
Europe, partially offset by negative comparable sales in Asia.


                                       38
--------------------------------------------------------------------------------



Gross Margin.  Gross margin increased 190 basis points to 37.9% for fiscal 2020,
compared to 36.0% in fiscal 2019, of which 100 basis points was due to a lower
occupancy rate and 90 basis points was due to higher product margins. The lower
occupancy rate was due primarily to lower logistics costs in Europe and, to a
lesser extent, the favorable impact from segment mix. The higher product margins
were driven primarily by higher initial markups in Europe and Americas Retail.
Gross Profit.  Gross profit increased by $76.1 million, or 8.1%, to $1.02
billion for fiscal 2020, compared to $939.6 million in fiscal 2019. The increase
in gross profit, which included an unfavorable impact from currency translation,
was due primarily to the favorable impact on gross profit from higher revenue
and, to a lesser extent, higher overall products margins and lower logistics
costs. Currency translation fluctuations relating to our foreign operations
unfavorably impacted gross profit by $26.4 million.
The Company includes inbound freight charges, purchasing costs and related
overhead, retail store occupancy costs, including lease costs and depreciation
and amortization, and a portion of the Company's distribution costs related to
its retail business in cost of product sales. The Company also includes net
royalties received on the Company's inventory purchases of licensed product as a
reduction to cost of product sales. The Company's gross margin may not be
comparable to that of other entities since some entities include all of the
costs related to their distribution in cost of product sales and others, like
the Company, generally exclude wholesale-related distribution costs from gross
margin, including them instead in SG&A expenses. Additionally, some entities
include retail store occupancy costs in SG&A expenses and others, like the
Company, include retail store occupancy costs in cost of product sales.
SG&A Rate. The Company's SG&A rate increased 20 basis points to 32.2% for fiscal
2020, compared to 32.0% in fiscal 2019. The Company's SG&A rate included the
favorable impact of 30 basis points from lower expenses related to certain
professional service and legal fees and related (credits) costs which the
Company otherwise would not have incurred as part of its business operations.
The Company's SG&A rate also included the favorable impact of 20 basis points
from lower CEO separation charges. Excluding these amounts, the Company's SG&A
rate would have increased 70 basis points due primarily to higher corporate
investments during fiscal 2020 compared to the prior year, partially offset by
leveraging of expenses, mainly in Europe.
SG&A Expenses. SG&A expenses increased by $29.8 million, or 3.6%, to $865.1
million for fiscal 2020, compared to $835.3 million in fiscal 2019. The
increase, which included a favorable impact from currency translation, was
driven primarily by higher performance-based compensation costs and, to a lesser
extent, higher selling and merchandising expenses, partially offset by lower
expenses related to certain professional service and legal fees and related
(credits) costs and, to a lesser extent, lower separation-related charges
related to the departure of our former CEO. Currency translation fluctuations
relating to our foreign operations favorably impacted SG&A expenses by $23.3
million.
European Commission Fine. The Company recognized charges of €39.8 million ($45.6
million) during fiscal 2019 for a fine imposed by the European Commission
related to alleged violations of European Union competition rules by the
Company. The Company paid the full amount of the fine during the first quarter
of fiscal 2020.
Asset Impairment Charges. During fiscal 2020, the Company recognized asset
impairment charges of $10.0 million, compared to $6.9 million in the prior year.
Currency translation fluctuations relating to our foreign operations favorably
impacted asset impairment charges by $0.3 million.
Net Gains on Lease Terminations. There were no net gains on lease terminations
recorded during fiscal 2020. During fiscal 2019, the Company recognized net
gains on lease terminations of $0.5 million related primarily to the early
termination of certain lease agreements in North America.
Operating Margin. Operating margin increased 330 basis points to 5.3% for fiscal
2020, compared to 2.0% in fiscal 2019. The European Commission fine unfavorably
impacted operating margin by 170 basis points during fiscal 2019. Lower expenses
related to certain professional service and legal fees and related (credits)
costs recorded during fiscal 2020 favorably impacted operating margin by 30
basis points compared to the prior year. Lower CEO separation charges recorded
during fiscal 2020 favorably impacted operating margin by 20 basis points
compared to the prior year. Higher asset impairment charges recorded during
fiscal 2020 unfavorably impacted operating margin by 10


                                       39
--------------------------------------------------------------------------------



basis points compared to the prior year. Excluding the impact of these items,
operating margin increased by 120 basis points compared to the prior year.
Currency exchange rate fluctuations had an immaterial impact on operating
margin.
Earnings from Operations. Earnings from operations increased by $88.5 million,
or 169.4%, to $140.7 million for fiscal 2020, compared to $52.2 million in
fiscal 2019. Currency translation fluctuations relating to our foreign
operations unfavorably impacted earnings from operations by $2.8 million.
Interest Income (Expense), Net.  Interest expense, net, was $14.4 million for
fiscal 2020, compared to interest income, net of $1.1 million in fiscal 2019.
The change was due primarily to $7.6 million in amortization of debt discount
and higher interest expense related to the Company's convertible senior notes
during fiscal 2020 and, to a lesser extent, decreased interest income related to
the impact of hedge ineffectiveness of foreign exchange currency contracts
designated as cash flow hedges recognized during fiscal 2019. As a result of the
adoption of new guidance during the first quarter of fiscal 2020, there was no
interest component recognized related to hedge ineffectiveness during fiscal
2020.
Other Expense, Net.  Other expense, net, was $2.5 million for fiscal 2020,
compared to $6.6 million in fiscal 2019. The change was due primarily to net
unrealized gains on non-operating assets compared to unrealized losses in the
prior year and, to a lesser extent, lower net unrealized mark-to-market
revaluation losses on foreign currency balances, partially offset by our
proportionate share of net losses related to our minority investment in a
privately-held apparel company and lower net mark-to-market gains on revaluation
of foreign exchange currency contracts.
Income Tax Expense.  Income tax expense for fiscal 2020 was $22.5 million, or an
18.2% effective tax rate, compared to $29.5 million, or a 63.2% effective tax
rate, in fiscal 2019. The decrease in the effective income tax rate was due
primarily to the favorable impact from the mix of earnings in foreign
jurisdictions during fiscal 2020 compared to the prior year and, to a lesser
extent, the revision of provisional amounts recorded related to the impact of
the Tax Reform during fiscal 2019.
Net Earnings Attributable to Noncontrolling Interests.  Net earnings
attributable to noncontrolling interests for fiscal 2020 was $5.3 million, net
of taxes, compared to $3.1 million, net of taxes, in fiscal 2019.
Net Earnings Attributable to Guess?, Inc.  Net earnings attributable to
Guess?, Inc. were $96.0 million for fiscal 2020, compared to $14.1 million in
fiscal 2019. Diluted earnings per share was $1.33 for fiscal 2020, compared to
$0.16 in fiscal 2019. We estimate that the favorable impact from share
repurchases offset by the unfavorable impact from additional interest expense
recognized related to the convertible senior notes had a net positive impact on
diluted earnings per share of $0.06 for fiscal 2020. We also estimate that the
negative impact of currency on diluted earnings per share for fiscal 2020 was
approximately $0.07 per share. During fiscal 2020, the Company recognized $10.0
million of asset impairment charges; a net credit of $0.9 million of certain
professional service and legal fees and related costs; $0.4 million of CEO
separation charges and $7.6 million of amortization of debt discount related to
the Company's convertible senior notes (or a combined $9.1 million after
considering the related tax benefit of these adjustments as well as the impact
from changes in the tax law on deferred taxes in certain tax jurisdictions, net
tax settlements and adjustments to specific uncertain tax positions totaling
$8.1 million), or an unfavorable $0.12 per share impact. Excluding the impact of
these items, adjusted net earnings attributable to Guess?, Inc. were $105.0
million and adjusted diluted earnings were $1.45 per common share for fiscal
2020. We estimate that the favorable impact from share repurchases offset by the
unfavorable impact from additional interest expense recognized related to the
convertible senior notes had a positive impact of $0.14 on adjusted diluted
earnings per share for fiscal 2020. During fiscal 2019, the Company recognized
€39.8 million ($45.6 million) related to a fine imposed by the European
Commission; $6.9 million of asset impairment charges; $0.5 million of net gains
on lease terminations; $6.1 million of certain professional service and legal
fees and related costs, $5.2 million of CEO separation charges and $6.3 million
in total income tax charges related to the enactment of the Tax Reform (or a
combined $66.3 million after considering the related tax benefit of $3.4
million), or an unfavorable $0.82 per share impact. Excluding the impact of
these items, adjusted net earnings attributable to Guess?, Inc. were $80.4
million and adjusted diluted earnings were $0.98 per common share for fiscal
2019. References to financial results excluding the impact of these items are
non-GAAP measures and are addressed below under "Non-GAAP Measures."


                                       40
--------------------------------------------------------------------------------



Information by Business Segment
The following table presents our net revenue and earnings (loss) from operations
by segment for the periods indicated (dollars in thousands):

                                        Fiscal 2020      Fiscal 2019       Change         % Change
Net revenue:
Americas Retail                        $   811,547      $   824,674     $   (13,127 )        (1.6 %)
Americas Wholesale                         186,389          170,812          15,577           9.1 %
Europe                                   1,248,114        1,142,768         105,346           9.2 %
Asia                                       346,212          388,246         (42,034 )       (10.8 %)
Licensing                                   85,847           83,194           2,653           3.2 %
Total net revenue                      $ 2,678,109      $ 2,609,694     $    68,415           2.6 %
Earnings (loss) from operations:
Americas Retail                        $    22,279      $    27,532     $    (5,253 )       (19.1 %)
Americas Wholesale                          35,674           29,935           5,739          19.2 %
Europe                                     134,078           58,298          75,780         130.0 %
Asia                                        (8,894 )         12,365         (21,259 )      (171.9 %)
Licensing                                   74,459           72,986           1,473           2.0 %

Total segment earnings from operations 257,596 201,116

 56,480          28.1 %
Corporate overhead                        (106,948 )        (96,805 )       (10,143 )        10.5 %
European Commission fine                         -          (45,637 )        45,637
Asset impairment charges                    (9,977 )         (6,939 )        (3,038 )        43.8 %
Net gains on lease terminations                  -              477            (477 )
Total earnings from operations         $   140,671      $    52,212     $    88,459         169.4 %
Operating margins:
Americas Retail                                2.7 %            3.3 %
Americas Wholesale                            19.1 %           17.5 %
Europe                                        10.7 %            5.1 %
Asia                                          (2.6 %)           3.2 %
Licensing                                     86.7 %           87.7 %
Total Company                                  5.3 %            2.0 %


Americas Retail
Net revenue from our Americas Retail segment decreased by $13.1 million, or
1.6%, to $811.5 million for fiscal 2020, from $824.7 million in fiscal 2019. In
constant currency, net revenue decreased by 1.3% compared to the prior year,
driven primarily by net store closures. The store base for the U.S. and Canada
decreased by an average of 14 net stores in fiscal 2020 compared to the prior
year, resulting in a 3.3% net decrease in average square footage. Comparable
store sales (including e-commerce) were relatively flat in U.S. dollars and
constant currency. The inclusion of our e-commerce sales increased the
comparable sales percentage by 1% in U.S. dollars and constant currency.
Currency translation fluctuations relating to our non-U.S. retail stores and
e-commerce sites unfavorably impacted net revenue by $2.1 million.
Operating margin decreased 60 basis points to 2.7% for fiscal 2020, from 3.3% in
fiscal 2019. This decrease was driven by a higher SG&A rate, partially offset by
higher gross margins. The higher SG&A rate was driven primarily by higher store
selling expenses due primarily to store payroll pressures. The higher gross
margins were driven primarily by higher initial markups and, to a lesser extent,
lower occupancy costs, partially offset by higher markdowns.


                                       41
--------------------------------------------------------------------------------



Earnings from operations from our Americas Retail segment decreased by $5.3
million, or 19.1%, to $22.3 million in fiscal 2020, from $27.5 million in fiscal
2019. The decrease reflects the unfavorable impact on earnings from lower
revenue and, to a lesser extent, higher store selling expenses, partially offset
by lower occupancy costs.
Americas Wholesale
Net revenue from our Americas Wholesale segment increased by $15.6 million, or
9.1%, to $186.4 million for fiscal 2020, compared to $170.8 million in fiscal
2019. In constant currency, net revenue increased by 9.7% compared to the prior
year, driven primarily by higher shipments in our U.S. wholesale business.
Currency translation fluctuations relating to our non-U.S. wholesale businesses
unfavorably impacted net revenue by $1.0 million.
Operating margin increased 160 basis points to 19.1% for fiscal 2020, compared
to 17.5% in fiscal 2019, due primarily to higher gross margins. The higher gross
margins were driven primarily by lower markdowns and, to a lesser extent, higher
initial markups.
Earnings from operations from our Americas Wholesale segment increased by $5.7
million, or 19.2%, to $35.7 million for fiscal 2020, compared to $29.9 million
in fiscal 2019. The increase was driven primarily by the favorable impact on
earnings from higher revenue.
Europe
Net revenue from our Europe segment increased by $105.3 million, or 9.2%, to
$1.25 billion for fiscal 2020, compared to $1.14 billion in fiscal 2019. In
constant currency, net revenue increased by 14.1% compared to the prior year,
driven primarily by the favorable impact from higher shipments in our European
wholesale business and, to a lesser extent, retail expansion and positive
comparable sales. As of February 1, 2020, we directly operated 517 stores in
Europe compared to 490 stores at February 2, 2019, excluding concessions, which
represents a 5.5% increase over the prior year. Comparable sales (including
e-commerce) were relatively flat in U.S. dollars and increased 4% in constant
currency compared to the prior year. The inclusion of our e-commerce sales
increased the comparable sales percentage by 4% in U.S. dollars and constant
currency. Currency translation fluctuations relating to our European operations
unfavorably impacted net revenue by $56.2 million.
Operating margin increased 560 basis points to 10.7% for fiscal 2020, compared
to 5.1% in fiscal 2019, driven by higher gross margins and, to a lesser extent,
a lower SG&A rate. The higher gross margins were due primarily to higher initial
markups and, to a lesser extent, lower logistics costs and lower markdowns. The
lower SG&A rate was due primarily to overall leveraging of expenses driven by
higher wholesale and e-commerce shipments.
Earnings from operations from our Europe segment increased by $75.8 million, or
130.0%, to $134.1 million for fiscal 2020, compared to $58.3 million in fiscal
2019. The increase was driven primarily by the favorable impact on earnings from
higher revenue and, to a lesser extent, higher product margins, partially offset
by higher occupancy costs and store selling expenses driven primarily by retail
expansion. Currency translation fluctuations relating to our European operations
unfavorably impacted earnings from operations by $3.4 million.
Asia
Net revenue from our Asia segment decreased by $42.0 million, or 10.8%, to
$346.2 million for fiscal 2020, compared to $388.2 million in fiscal 2019. In
constant currency, net revenue decreased by 7.5% compared to the prior year,
driven primarily by negative comparable sales. Comparable sales (including
e-commerce) decreased 19% in U.S. dollars and 16% in constant currency compared
to the prior year. The inclusion of our e-commerce sales decreased the
comparable sales percentage by 1% in U.S. dollars and 2% in constant currency.
As of February 1, 2020, we and our partners operated 509 stores and 327
concessions in Asia, compared to 536 stores and 358 concessions at February 2,
2019. As of February 1, 2020, we directly operated 219 stores and 117
concessions, compared to 227 directly operated stores and 174 concessions at
February 2, 2019. Currency translation fluctuations relating to our Asian
operations unfavorably impacted net revenue by $12.9 million.
Operating margin decreased 580 basis points to negative 2.6% for fiscal 2020,
from 3.2% in fiscal 2019. The decrease in operating margin was driven by a
higher SG&A rate and, to a lesser extent, lower gross margins. The higher SG&A
rate was driven by overall deleveraging of expenses due mainly to negative
comparable sales. The lower gross margins were driven primarily by overall
deleveraging of occupancy costs due mainly to negative comparable sales and, to
a lesser extent, higher markdowns.


                                       42
--------------------------------------------------------------------------------



Loss from operations from our Asia segment was $8.9 million for fiscal 2020,
compared to earnings from operations of $12.4 million in fiscal 2019. The
deterioration was driven primarily by the unfavorable impact on earnings from
lower revenue.
Licensing
Net royalty revenue from our Licensing segment increased by $2.7 million, or
3.2%, to $85.8 million for fiscal 2020, compared to $83.2 million in fiscal
2019.
Earnings from operations from our Licensing segment increased by $1.5 million,
or 2.0%, to $74.5 million for fiscal 2020, from $73.0 million in fiscal 2019.
The increase was driven by the favorable impact to earnings from higher revenue.
Corporate Overhead
Unallocated corporate overhead increased by $10.1 million to $106.9 million for
fiscal 2020, compared to $96.8 million in fiscal 2019. The increase was driven
primarily by higher performance-based compensation costs and, to a lesser
extent, higher corporate investments and advertising expenses, partially offset
by lower expenses related to certain professional service and legal fees and
related (credits) costs and, to a lesser extent, lower separation-related
charges related to the departure of our former CEO. During fiscal 2019, the
Company recorded $5.2 million in separation-related charges related to the
departure of our former CEO. These charges were comprised of $2.4 million in
cash severance payments and $2.8 million in non-cash stock-based compensation
expenses resulting from the acceleration of the service vesting requirements of
certain previously granted stock awards. During fiscal 2020, the Company also
recorded $0.4 million mainly related to non-cash stock-based compensation
expense resulting from changes in expected performance conditions of certain
previously granted stock awards that were no longer subject to service vesting
requirements after his departure.
Fiscal 2019 Compared to Fiscal 2018
The comparison of fiscal 2019 to fiscal 2018 has been omitted from this Form
10-K, but can be referenced in our Form 10-K for the fiscal year ended February
2, 2019, filed on March 29, 2019.
Non-GAAP Measures
The Company's reported financial results are presented in accordance with GAAP.
The reported net earnings attributable to Guess?, Inc. and diluted earnings per
share in fiscal 2020 reflect the impact of (i) asset impairment charges, (ii)
certain professional service and legal fees and related (credits) costs, (iii)
separation charges related to the departure of our former CEO, (iv) non-cash
amortization of debt discount on our convertible senior notes and (v) the
related tax effects of the foregoing items as well as the impact from changes in
the tax law on deferred taxes in certain tax jurisdictions, net tax settlements
and adjustments to specific uncertain tax positions. The reported net earnings
attributable to Guess?, Inc. and diluted earnings per share in fiscal 2019
reflect the impact of (i) the European Commission fine, (ii) asset impairment
charges, (iii) net gains on lease terminations, (iv) certain professional
service and legal fees and related costs, (v) separation charges related to the
departure of our former CEO, (vi) the related tax effects of the foregoing items
and (vii) amounts recorded related to the enactment of the Tax Reform. These
items affect the comparability of the Company's reported results. The financial
results are also presented on a non-GAAP basis, as defined in Section 10(e) of
Regulation S-K of the SEC, to exclude the effect of these items. The Company
believes that these "non-GAAP" or "adjusted" financial measures are useful for
investors to evaluate the comparability of the Company's operating results and
its future outlook when reviewed in conjunction with the Company's GAAP
financial statements. The non-GAAP measures are provided in addition to, and not
as alternatives for, the Company's reported GAAP results.
The adjusted measures for fiscal 2020 exclude the impact of $10.0 million of
asset impairment charges; $0.4 million of CEO separation charges; $7.6 million
of amortization of debt discount on the Company's convertible senior notes and a
net credit of $0.9 million of certain professional service and legal fees and
related (credits) costs. The asset impairment charges related primarily to the
impairment of certain retail locations resulting from under-performance and
expected store closures and, to a lesser extent, impairment charges related to
goodwill associated with the Company's China retail reporting unit and
impairment charges related to certain operating lease right-of-use assets.
During fiscal 2020, the Company recorded $0.4 million in separation-related
charges related to the departure


                                       43
--------------------------------------------------------------------------------



of our former CEO. These charges mainly related to non-cash stock-based
compensation expense resulting from changes in expected performance conditions
of certain previously granted stock awards that were no longer subject to
service vesting requirements after his departure. Certain professional service
and legal fees and related (credits) costs were primarily due to amounts which
the Company otherwise would not have incurred as part of its business
operations. These items resulted in a combined $9.1 million impact (after
considering the related tax benefit as well as the impact from changes in the
tax law on deferred taxes in certain tax jurisdictions, net tax settlements and
adjustments to specific uncertain tax positions totaling $8.1 million), or an
unfavorable $0.12 per share impact during fiscal 2020. Net earnings attributable
to Guess?, Inc. were $96.0 million and diluted earnings per common share were
$1.33 for fiscal 2020. Excluding the impact of these items, adjusted net
earnings attributable to Guess?, Inc. were $105.0 million and adjusted diluted
earnings per common share were $1.45 for fiscal 2020.
The adjusted measures for fiscal 2019 exclude the impact of the European
Commission fine of $45.6 million, asset impairment charges of $6.9 million,
certain professional service and legal fees and related costs of $6.1 million,
CEO separation charges of $5.2 million and additional income tax charges of $6.3
million related to the enactment of the Tax Reform, partially offset by the
impact of net gains on lease terminations of $0.5 million. The fine imposed by
the European Commission related to alleged violations of European Union
competition rules by the Company. The Company has made certain changes to its
business practices and agreements in response to these proceedings, and the
Company believes that such changes and any related modifications have not had,
and will not have, a material impact on its ongoing business operations within
the European Union. The asset impairment charges related primarily to the
impairment of certain retail locations resulting from under-performance and
expected store closures. Certain professional service and legal fees and related
costs were primarily due to amounts which the Company otherwise would not have
incurred as part of its business operations. During fiscal 2019, the Company
recorded $5.2 million in separation-related charges related to the departure of
our former CEO. These charges were comprised of $2.4 million in cash severance
payments and $2.8 million in non-cash stock-based compensation expenses
resulting from the acceleration of the service vesting requirements of certain
previously granted stock awards. During the quarter ended November 3, 2018, the
Company revised the provisional amounts previously recorded related to the
estimated amounts due related to deemed repatriation of foreign earnings, and
recorded income tax benefits of $19.6 million. During the fourth quarter of
fiscal 2019, the Company concluded, based on additional regulatory guidance
issued during the quarter, related to the Tax Reform, that the Company would owe
transition taxes if proposed legislation that clarifies existing tax regulation
with respect of the dividends received deduction calculation is passed into law.
As a result, during the three months ended February 2, 2019, the Company
recorded additional charges due to the Tax Reform of $25.8 million, or a total
of $6.3 million for fiscal 2019. Net gains on lease terminations related
primarily to the early termination of certain lease agreements in North America.
These items resulted in a combined $66.3 million impact (after considering the
related tax benefit of $3.4 million), or an unfavorable $0.82 per share impact
during fiscal 2019. Net earnings attributable to Guess?, Inc. were $14.1 million
and diluted earnings per common share were $0.16 for fiscal 2019. Excluding the
impact of these items, adjusted net earnings attributable to Guess?, Inc. were
$80.4 million and adjusted diluted earnings per common share were $0.98 for
fiscal 2019.
Our discussion and analysis herein also includes certain constant currency
financial information. Foreign currency exchange rate fluctuations affect the
amount reported from translating the Company's foreign revenue, expenses and
balance sheet amounts into U.S. dollars. These rate fluctuations can have a
significant effect on reported operating results under GAAP. The Company
provides constant currency information to enhance the visibility of underlying
business trends, excluding the effects of changes in foreign currency
translation rates. To calculate net revenue, comparable store sales and earnings
(loss) from operations on a constant currency basis, operating results for the
current-year period are translated into U.S. dollars at the average exchange
rates in effect during the comparable period of the prior year. To calculate
balance sheet amounts on a constant currency basis, the current year balance
sheet amount is translated into U.S. dollars at the exchange rate in effect at
the comparable prior-year period end. The constant currency calculations do not
adjust for the impact of revaluing specific transactions denominated in a
currency that is different to the functional currency of that entity when
exchange rates fluctuate. The constant currency information presented may not be
comparable to similarly titled measures reported by other companies.
In calculating the estimated impact of currency fluctuations (including
translational and transactional impacts) on other measures such as earnings
(loss) per share, the Company estimates gross margin (including the impact of
foreign exchange currency contracts designated as cash flow hedges for
anticipated merchandise purchases) and expenses using the appropriate prior-year
rates, translates the estimated foreign earnings (loss) at the comparable


                                       44
--------------------------------------------------------------------------------



prior-year rates and excludes the year-over-year earnings impact of gains or
losses arising from balance sheet remeasurement and foreign exchange currency
contracts not designated as cash flow hedges for merchandise purchases.
Liquidity and Capital Resources
We need liquidity globally primarily to fund our working capital, occupancy
costs, expansion plans, remodeling and rationalization of our retail stores,
shop-in-shop programs, concessions, systems, infrastructure, other existing
operations, international growth and potential acquisitions and investments. In
addition, in the U.S. we need liquidity to fund share repurchases, payment of
dividends to our stockholders and interest payments on our debt. Generally, our
working capital needs are highest during the late summer and fall as our
inventories increase before the holiday selling period. During the fiscal year
ended February 1, 2020, we relied primarily on trade credit, available cash,
real estate and other operating leases, finance leases, proceeds from the
issuance of convertible senior notes, proceeds from short-term lines of credit
and internally generated funds to finance our operations, share repurchases,
payment of dividends and expansion. We anticipate that we will be able to
satisfy our ongoing cash requirements during the next twelve months for working
capital, capital expenditures, payments on our debt, finance leases and
operating leases as well as lease termination payments, potential acquisitions
and investments, share repurchases and dividend payments to stockholders,
primarily with cash flow from operations and existing cash balances as
supplemented by borrowings under our existing Credit Facility in the U.S. and
Canada as well as bank facilities in Europe and China as needed. As further
noted below under the "Recent Developments" section, the Company is also
implementing a number of other measures to help preserve liquidity in response
to the COVID-19 pandemic. We expect to settle the principal amount of our
outstanding convertible senior notes in 2024 in cash and any excess in shares.
Such arrangements are described further in "Part IV. Financial Statements -
Note 8 - Borrowings and Finance Lease Obligations" and "Part I, Item 1.
Financial Statements - Note 10 - Convertible Senior Notes and Related
Transactions" in this Form 10-K. Due to the seasonality of our business and cash
needs, we may increase borrowings under our established credit facilities from
time-to-time, during the next twelve months.
In December 2017, the U.S. government enacted the Tax Reform, which
significantly changed the U.S. corporate income tax laws, including moving from
a global taxation regime to a territorial regime and lowering the U.S. federal
corporate income tax rate from 35% to 21%. The Tax Reform also required a
one-time mandatory transition tax on accumulated foreign earnings. Any income
tax payable related to the transition tax is due over an eight-year period
beginning in calendar 2018. The balance related to this transition tax included
in other long-term liabilities was $19.9 million and $25.8 million as
of February 1, 2020 and February 2, 2019, respectively. Refer to "Part IV.
Financial Statements - Note 12 - Income Taxes" for further detail.
The Company has historically considered the undistributed earnings of its
foreign subsidiaries to be indefinitely reinvested. As a result of the Tax
Reform, the Company had a substantial amount of previously taxed earnings that
could be distributed to the U.S. without additional U.S. taxation. The Company
continues to evaluate its plans for reinvestment or repatriation of unremitted
foreign earnings and regularly reviews its cash positions and determination of
permanent reinvestment of foreign earnings. If the Company determines that all
or a portion of such foreign earnings are no longer indefinitely reinvested, it
may be subject to additional foreign withholding taxes and U.S. state income
taxes, beyond the Tax Reform's one-time transition tax. The Company intends to
indefinitely reinvest the remaining earnings from the Company's foreign
subsidiaries for which a deferred tax liability has not already been recorded.
As of February 1, 2020, the Company had cash and cash equivalents of $284.6
million, of which approximately $110.1 million was held in the U.S.
Excess cash and cash equivalents, which represent the majority of our
outstanding cash and cash equivalents balance, are held primarily in overnight
deposit and short-term time deposit accounts. Please see "Part I, Item 1A. Risk
Factors" for a discussion of risk factors which could reasonably be likely to
result in a decrease of internally generated funds available to finance capital
expenditures and working capital requirements.
Recent Developments
The COVID-19 pandemic is having a significant negative impact on the Company's
financial performance. The pandemic is ongoing and dynamic in nature and, to
date, the Company has experienced temporary closures in key regions globally,
along with other major retailers. For example, the Company announced the
temporary closure of its retail stores in the United States and Canada as a
result of the COVID-19 pandemic, following similar tempor


                                       45
--------------------------------------------------------------------------------



ary closures of Guess-operated stores that are currently in place in a number of
countries in Europe. In Asia, where store closures related to COVID-19 began,
most of the Guess-operated stores have reopened, although to significantly lower
traffic. The Company's e-commerce sites currently remain open in all regions.
In addition, retail stores and e-commerce sites that are open have and continue
to experience significant reductions in traffic and therefore, revenue. We are
unable to determine with any degree of accuracy the length and severity of the
crisis and we do expect it will have a material impact on our consolidated
financial position, consolidated results of operations, and consolidated cash
flows in the first quarter of fiscal 2021. The extent and duration of the crisis
remains uncertain and may impact consumer purchasing activity if disruptions
continue throughout the year which could continue to impact us.
Between March 16 and March 19, 2020, as a precautionary measure to ensure
financial flexibility and maintain maximum liquidity in response to the COVID-19
pandemic, the Company drew down approximately $212 million under certain of its
credit facilities in the U.S., Canada and Europe (the "Drawdowns"). The
Drawdowns included approximately $78 million under our existing credit facility
in the U.S. and Canada (the "Credit Facility") and $134 million under a number
of existing short-term borrowing agreements with various banks in Europe.
Following the Drawdowns, we had remaining borrowing capacity of approximately
$33 million under the Credit Facility and of approximately $24 million under our
various existing borrowing agreements in Europe and Asia. As of March 19, 2020,
the current weighted average interest rate for borrowings under the Credit
Facility was approximately 3.65% and the current interest rates for borrowings
under the European borrowing agreements ranged between 0.65% and 1.1%. We are in
the process of negotiating an extension for the Credit Facility, which is
currently scheduled to mature on June 22, 2020. The European and Asian
facilities are generally scheduled to mature between July 2020 and January 2021.
If we have sustained decrease in consumer demand related to the COVID-19
pandemic, we may require access to additional credit.
The Company is also implementing a number of other measures to help mitigate the
operating and financial impact of the pandemic, including: (i) furloughing all
of its U.S. and Canada store associates and significant portions of its U.S. and
Canada corporate and distribution center associates starting April 2, 2020; (ii)
implementing temporary tiered salary reductions for management level corporate
employees, including its executive officers; (iii) deferring annual merit
increases; (iv) executing substantial reductions in expenses, store occupancy
costs, capital expenditures and overall costs, including through reduced
inventory purchases; and (v) working globally with country management teams to
maximize the Company's participation in all eligible government or other
initiatives available to businesses or employees impacted by the COVID-19
pandemic.
Fiscal 2020 Compared to Fiscal 2019
The Company has presented below the cash flow performance comparison of the year
ended February 1, 2020 versus the year ended February 2, 2019.
Operating Activities
Net cash provided by operating activities was $197.9 million for the fiscal year
ended February 1, 2020, compared to $81.7 million for the fiscal year ended
February 2, 2019, or an increase of $116.2 million. The increase was driven
primarily by higher cash flows generated from net earnings and, to a lesser
extent, favorable changes in working capital. The favorable changes in working
capital were due primarily to lower inventory levels resulting from improved
inventory management during fiscal 2020 compared to the prior year, partially
offset by increased payments on accounts payable and accrued expenses, of which
$45.6 million related to payment of the European Commission fine during the
first quarter of fiscal 2020 for fines imposed and accrued in fiscal 2019.
Investing Activities
Net cash used in investing activities was $56.5 million for the fiscal year
ended February 1, 2020, compared to $123.5 million for the fiscal year ended
February 2, 2019. Net cash used in investing activities related primarily to
capital expenditures incurred on international retail expansion, investments in
technology infrastructure and existing store remodeling programs. In addition,
proceeds from the disposition of business and long-term assets, settlements of
forward exchange currency contracts, purchases of investments and the cost of
any business acquisitions are also included in cash flows used in investing
activities.
The decrease in cash used in investing activities was driven primarily by lower
spending on retail expansion and, to a lesser extent, purchases of investments
and business acquisitions in the prior year, compared to proceeds


                                       46
--------------------------------------------------------------------------------



received from the sale of business and long-term assets during fiscal 2020.
During the fiscal year ended February 1, 2020, the Company opened 66 directly
operated stores compared to 177 directly operated stores that were opened in the
prior year.
Financing Activities
Net cash used in financing activities was $64.2 million for the fiscal year
ended February 1, 2020, compared to $96.8 million for the fiscal year ended
February 2, 2019. Cash used in financing activities related primarily to the
repurchases of shares of the Company's common stock and, to a lesser extent,
payment of dividends, partially offset by net proceeds from the issuance of
convertible senior notes, related warrants and short-term borrowings. In
addition, payments related to finance lease obligations, other long-term
borrowings and capital distributions to noncontrolling interests as well as cash
activity from the issuance of common stock under our equity plans and proceeds
from capital contributions from noncontrolling interests are also included in
cash flows used in financing activities.
The decrease in cash used in financing activities was driven primarily by net
proceeds received from the issuance of convertible senior notes and related
warrants and, to a lesser extent, lower payment of dividends during fiscal 2020
compared to the prior year. This was partially offset by higher investments made
in share repurchases, which included shares repurchased under the Company's
accelerated share repurchase agreement, during fiscal 2020 compared to the prior
year.
Effect of Exchange Rates on Cash, Cash Equivalents and Restricted Cash
During the fiscal year ended February 1, 2020, changes in foreign currency
translation rates decreased our reported cash, cash equivalents and restricted
cash balance by $3.4 million. This compares to a decrease of $18.0 million in
cash, cash equivalents and restricted cash driven by changes in foreign currency
translation rates during the fiscal year ended February 2, 2019.
Working Capital
As of February 1, 2020, the Company had net working capital (including cash and
cash equivalents) of $425.8 million, compared to $545.3 million at February 2,
2019. The decrease in net working capital as of February 1, 2020 was driven
primarily by the recognition of the current portion of operating lease
liabilities of $192.1 million resulting from the adoption of a comprehensive new
lease standard during the first quarter of fiscal 2020.
The Company's primary working capital needs are for the current portion of lease
liabilities, accounts receivable and inventory. The accounts receivable balance
consists of trade receivables relating primarily to the Company's wholesale
business in Europe and, to a lesser extent, to its wholesale businesses in Asia
and the Americas, royalty receivables relating to its licensing operations,
credit card and retail concession receivables related to its retail businesses
and certain other receivables. Accounts receivable increased by $5.3 million, or
1.6%, to $327.3 million as of February 1, 2020, compared to $322.0 million at
February 2, 2019. On a constant currency basis, accounts receivable increased by
$14.7 million, or 4.6%, when compared to February 2, 2019. As of February
1, 2020, approximately 53% of our total net trade receivables and 64% of our
European net trade receivables were subject to credit insurance coverage,
certain bank guarantees or letters of credit for collection purposes. Our credit
insurance coverage contains certain terms and conditions specifying deductibles
and annual claim limits. Inventory decreased by $75.8 million, or 16.2%, to
$393.1 million as of February 1, 2020, from $468.9 million at February 2, 2019.
On a constant currency basis, inventory decreased by $67.2 million, or 14.3%,
when compared to February 2, 2019, driven primarily by improved inventory
management.


                                       47
--------------------------------------------------------------------------------

Contractual Obligations and Commitments The following table summarizes the Company's contractual obligations as of February 1, 2020 and the effects such obligations are expected to have on liquidity and cash flow in future periods (dollars in thousands):

                                                          Payments due by period
                                                  Less than                                    More than
                                     Total          1 year       1-3 years      3-5 years       5 years
Contractual Obligations:
Short-term borrowings            $     3,957     $    3,957     $        -     $        -     $        -
Convertible senior notes, net1,2     327,000          6,000         12,000        309,000              -
Long-term debt, excluding
convertible senior notes, net1        24,280          4,042          2,043          2,080         16,115
Finance lease obligations1            20,576          3,349          6,902          5,403          4,922
Operating lease obligations3       1,003,321        220,364        363,481        232,695        186,781
Purchase obligations4                208,613        208,613              -              -              -
Benefit obligations5                  84,202          3,414          5,751          4,703         70,334
Total                            $ 1,671,949     $  449,739     $  390,177

$ 553,881 $ 278,152

Other commercial commitments6 $ 2,265 $ 2,265 $ -

$ - $ -

______________________________________________________________________

1 Includes interest payments.

2 In April 2019, the Company issued $300 million principal amount of 2.00%

convertible senior notes due 2024 (the "Notes") in a private offering. Refer

to "Part IV. Financial Statements - Note 10 - Convertible Senior Notes and

Related Transactions" for further detail.

3 The Company has elected the practical expedient to not separate non-lease

components from lease components in the measurement of liabilities for its

directly-operated real estate leases. As such, this amount reflects operating

lease costs that are considered in the measurement of the related operating

lease liabilities, which may include fixed payments related to rent,

insurance, property taxes, sales promotion, common area maintenance and

certain utility charges, where applicable. This does not include variable

lease costs that are excluded from the measurement of the operating lease

liabilities, such as those charges that are based on a percentage of annual

sales volume or estimates. In fiscal 2020, these variable charges totaled

$95.8 million. Refer to "Part IV. Financial Statements - Note 9 - Lease
    Accounting" for further detail.

4 Purchase obligations represent open purchase orders for raw materials and

merchandise at the end of the fiscal year. These purchase orders can be

impacted by various factors, including the scheduling of market weeks, the

timing of issuing orders, the timing of the shipment of orders and currency

fluctuations.

5 Includes expected payments associated with the deferred compensation plan and

the Supplemental Executive Retirement Plan through fiscal 2055.

6 Consists of standby letters of credit for workers' compensation and general

liability insurance.

Excluded from the above contractual obligations table is the noncurrent
liability for unrecognized tax benefits, including penalties and interest, of
$34.0 million. This liability for unrecognized tax benefits has been excluded
because the Company cannot make a reliable estimate of the period in which the
liability will be settled, if ever.
The above table also excludes current liabilities (other than short-term
borrowings) as these amounts will be paid within one year and certain long-term
liabilities that do not require cash payments.
Off-Balance Sheet Arrangements
Other than certain obligations and commitments included in the table above, we
did not have any material off-balance sheet arrangements as of February 1, 2020.
Capital Expenditures
Gross capital expenditures totaled $61.9 million, before deducting lease
incentives of $5.5 million, for the fiscal year ended February 1, 2020. This
compares to gross capital expenditures of $108.1 million, before deducting lease
incentives of $11.6 million, for the fiscal year ended February 2, 2019.
We will periodically evaluate strategic acquisitions and alliances and pursue
those that we believe will support and contribute to our overall growth
initiatives.


                                       48
--------------------------------------------------------------------------------

Dividends

On March 18, 2020, we announced that, in light of uncertainty surrounding the
COVID-19 pandemic, we had decided to postpone our decision related to the
potential declaration of a quarterly cash dividend for the first quarter of
fiscal 2021.
Decisions on whether, when and in what amounts to continue making any future
dividend distributions will remain at all times entirely at the discretion of
the Company's Board of Directors, which reserves the right to change or
terminate the Company's dividend practices at any time and for any reason
without prior notice. The payment of cash dividends in the future will be based
upon a number of business, legal and other considerations, including our cash
flow from operations, capital expenditures, debt service and covenant
requirements, cash paid for income taxes, earnings, share repurchases, economic
conditions and U.S. and global liquidity.
Share Repurchases
On June 26, 2012, the Company's Board of Directors authorized a program to
repurchase, from time-to-time and as market and business conditions warrant, up
to $500 million of the Company's common stock. Repurchases under the program may
be made on the open market or in privately negotiated transactions, pursuant to
Rule 10b5-1 trading plans or other available means. There is no minimum or
maximum number of shares to be repurchased under the program, which may be
discontinued at any time, without prior notice. During fiscal 2020, the Company
repurchased 16,739,740 shares under the program at an aggregate cost of $288.0
million, which is inclusive of the shares repurchased under the ASR Contract as
described below. During fiscal 2019, the Company repurchased 1,118,808 shares
under the program at an aggregate cost of $17.6 million. During fiscal 2018, the
Company repurchased 3,866,387 shares at an aggregate cost of $56.1 million, of
which $6.0 million was settled in fiscal 2019. As of February 1, 2020, the
Company had remaining authority under the program to purchase $86.7 million of
its common stock.
On April 26, 2019, pursuant to existing stock repurchase authorizations, the
Company entered into an ASR Contract with JPMorgan Chase Bank, National
Association (in such capacity, the "ASR Counterparty"), to repurchase an
aggregate of $170 million of the Company's common stock. Under the ASR Contract,
the Company made an initial payment of $170 million to the ASR Counterparty and
received an initial delivery of approximately 5.2 million shares of common
stock, which represented approximately $102 million (or 60%) of the ASR
Contract. The Company received a final delivery of an additional 5.4 million
shares, or $68 million, under its ASR Contract on September 4, 2019. The final
share amount was determined based on the daily volume-weighted average price
since the effective date of the ASR Contract, less the applicable contractual
discount. When combined with the 5.2 million upfront shares received at the
inception of the ASR in April 2019, the Company repurchased approximately 10.6
million of its shares under the ASR at an average repurchase price of $16.09 per
share. All shares were repurchased in accordance with the Company's publicly
announced ASR program, which is now complete. The shares delivered under the ASR
Contract reduced the Company's outstanding shares and its weighted average
number of common shares outstanding for purposes of calculating basic and
diluted earnings per share.
Borrowings and Finance Lease Obligations
See "Part IV. Financial Statements - Note 8 - Borrowings and Finance Lease
Obligations" in this Form 10-K for disclosures about our borrowings and finance
lease obligations.
Subsequent to year end, as a precautionary measure to ensure financial
flexibility and maintain maximum liquidity in response to the COVID-19 pandemic,
the Company drew down approximately $212 million under certain of its credit
facilities in the U.S., Canada and Europe.
Supplemental Executive Retirement Plan
On August 23, 2005, the Board of Directors of the Company adopted a Supplemental
Executive Retirement Plan ("SERP") which became effective January 1, 2006. The
SERP provides select employees who satisfy certain eligibility requirements with
certain benefits upon retirement, termination of employment, death, disability
or a change in control of the Company, in certain prescribed circumstances.
As a non-qualified pension plan, no dedicated funding of the SERP is required;
however, the Company has made periodic payments into insurance policies held in
a rabbi trust to fund the expected obligations arising under


                                       49
--------------------------------------------------------------------------------



the non-qualified SERP. The amount of any future payments into the insurance
policies, if any, may vary depending on investment performance of the trust. The
cash surrender values of the insurance policies were $67.7 million and $61.7
million as of February 1, 2020 and February 2, 2019, respectively, and were
included in other assets in the Company's consolidated balance sheets. As a
result of changes in the value of the insurance policy investments, the Company
recorded unrealized gains (losses) of $7.6 million, $(1.1) million and $7.7
million in other income and expense during fiscal 2020, fiscal 2019 and fiscal
2018, respectively. The projected benefit obligation was $51.9 million and $52.2
million as of February 1, 2020 and February 2, 2019, respectively, and was
included in accrued expenses and other long-term liabilities in the Company's
consolidated balance sheets depending on the expected timing of payments. SERP
benefit payments of $1.7 million were made during both fiscal 2020 and fiscal
2019.
Employee Stock Purchase Plan
The Company's qualified employee stock purchase plan ("ESPP") allows qualified
employees (as defined) to participate in the purchase of designated shares of
the Company's common stock at a price equal to 85% of the lower of the closing
price at the beginning or end of each quarterly stock purchase period. The
Company has 4,000,000 shares of common stock registered under the ESPP. The
Company's ESPP will remain in effect through March 11, 2022. During the year
ended February 1, 2020, 53,424 shares of the Company's common stock were issued
pursuant to the ESPP at an average price of $14.65 per share for a total of $0.8
million.
Inflation
The Company does not believe that inflation trends in the U.S. and
internationally over the last three years have had a significant effect on net
revenue or profitability.
Critical Accounting Policies and Estimates
The Consolidated Financial Statements are prepared in conformity with accounting
principles generally accepted in the U.S., which require management to make
estimates and assumptions that affect the reported amounts of the assets and
liabilities and disclosures of contingent assets and liabilities as of the date
of the financial statements and the reported amounts of revenue and expenses
during the reporting period. Management bases its estimates and judgments on its
historical experience, an evaluation of current market trends as of the
reporting date and other relevant factors, the results of which form the basis
for making judgments about the carrying values of assets and liabilities that
are not readily apparent from other sources. Management evaluates its estimates
and judgments on an ongoing basis including those related to the allowances for
doubtful accounts, sales return and markdown allowances, gift card and loyalty
accruals, valuation of inventories, share-based compensation, recoverability of
deferred taxes, unrecognized tax benefits, the useful life of assets for
depreciation and amortization, evaluation of asset impairment, pension
obligations, workers' compensation and medical self-insurance expense and
accruals, litigation reserves and restructuring expense and accruals.
The Company believes that the following significant accounting policies involve
a higher degree of judgment and complexity. In addition to the accounting
policies mentioned below, see "Part IV. Financial Statements - Note 1 -
Description of the Business and Summary of Significant Accounting Policies and
Practices" in this Form 10-K for other significant accounting policies.
Allowances for Doubtful Accounts
In the normal course of business, the Company grants credit directly to certain
wholesale customers after a credit analysis is performed based on financial and
other criteria. Accounts receivable are recorded net of an allowance for
doubtful accounts. The Company maintains allowances for doubtful accounts for
estimated losses that result from the inability of its wholesale customers to
make their required payments. The Company bases its allowances on analysis of
the aging of accounts receivable at the date of the financial statements,
assessments of historical and current collection trends, an evaluation of the
impact of current economic conditions and whether the Company has obtained
credit insurance or other guarantees.
Sales Return Allowances
The Company accrues for estimated sales returns in the period in which the
related revenue is recognized. To recognize the financial impact of sales
returns, the Company estimates the amount of goods that will be returned based
on historical experience and reduces sales and cost of sales accordingly. The
Company's policy allows retail


                                       50
--------------------------------------------------------------------------------



customers in certain regions a grace period to return merchandise following the
date of sale. Substantially all of these returns are considered to be resalable
at a price that exceeds the cost of the merchandise. The Company includes the
allowance for sales returns in accrued expenses and the estimated cost
associated with such sales returns within other current assets in its
consolidated balance sheet.
Markdown Allowances
Costs associated with customer markdowns are recorded as a reduction to
revenues, and any unapplied amounts are included in accrued expenses.
Historically, these markdown allowances resulted from seasonal negotiations with
the Company's wholesale customers, as well as historical trends and the
evaluation of the impact of economic conditions.
Gift Card Breakage
Gift card breakage is income recognized due to the non-redemption of a portion
of gift cards sold by the Company for which a liability was recorded in prior
periods. Gifts cards are mainly used in the U.S. and Canada. The Company issues
its gift cards in the U.S. and Canada through one of its subsidiaries and is not
required by law to escheat the value of unredeemed gift cards to the state in
which the subsidiary is domiciled. Estimated breakage amounts are accounted for
under the redemption recognition method and are classified as additional net
revenues as the gift cards are redeemed. The Company determined a gift card
breakage rate based upon historical redemption patterns, which represented the
cumulative estimated amount of gift card breakage from the inception of the
electronic gift card program in late 2002. Any future revisions to the estimated
breakage rate may result in changes in the amount of breakage income recognized
in future periods.
Loyalty Programs
The Company has customer loyalty programs in North America, Europe and Asia
which cover all of its brands. Under certain of the programs, primarily in the
U.S. and Canada, customers accumulate points based on purchase activity. Once a
loyalty program member achieves a certain point level, the member earns awards
that may only be redeemed for merchandise. Unredeemed points generally expire
after six months without additional purchase activity and unredeemed awards
generally expire after two months. Where applicable, the Company allocates a
portion of the transaction price from sales in its direct-to-consumer channel to
its loyalty program by using historical redemption rates to estimate the value
of future award redemptions. This amount is accrued in current liabilities and
recorded as a reduction of net revenue in the period which the related revenue
is recognized. The aggregate dollar value of the loyalty program accruals
included in accrued expenses was $5.8 million and $5.7 million as of February
1, 2020 and February 2, 2019, respectively. Future revisions to the estimated
liability may result in changes to net revenue.
Inventory Reserves
Inventories are valued at the lower of cost (primarily weighted average method)
or net realizable value. The Company continually evaluates its inventories by
assessing slow moving product as well as prior seasons' inventory. Net
realizable value of aged inventory is estimated based on historical sales trends
for each product line category, the impact of market trends, an evaluation of
economic conditions, available liquidation channels and the value of current
orders relating to the future sales of this type of inventory. The Company
closely monitors off-price sales to ensure the actual results closely match
initial estimates. Estimates are regularly updated based upon this continuing
review.
Share-Based Compensation
The Company recognizes compensation expense for all share-based awards granted
based on the grant date fair value. The fair value of each stock option is
estimated on the grant date using the Black-Scholes option-pricing model and
involves several assumptions, including the risk-free interest rate, expected
volatility, dividend yield and expected life. The risk-free interest rate is
based on the U.S. Treasury yield curve in effect for the expected term of the
option at the time of grant. The expected stock price volatility is determined
based on an average of both historical volatility and implied volatility.
Implied volatility is derived from exchange traded options on the Company's
common stock. The expected dividend yield is based on the Company's history and
expectations of dividend payouts. The expected life is determined based on
historical trends. Compensation expense for nonvested stock options and stock
awards/units that are not subject to performance-based vesting conditions is
recognized on a straight-line basis over the vesting period. The Company has
elected to account for forfeitures as they occur.


                                       51
--------------------------------------------------------------------------------



In addition, the Company has granted certain nonvested units that require
certain minimum performance targets to be achieved in order for these awards to
vest. Vesting is also subject to continued service requirements through the
vesting date. Compensation expense for performance-based awards that vest in
increments is recognized based on an accelerated attribution method. If the
minimum performance targets are not forecasted to be achieved, no expense is
recognized during the period.
The Company has also granted certain nonvested stock units which are subject to
market-based performance targets in order for these units to vest. Vesting is
also subject to continued service requirements through the vesting date. The
grant date fair value for such nonvested stock units was estimated using a Monte
Carlo simulation that incorporates option-pricing inputs covering the period
from the grant date through the end of the performance period. Compensation
expense for such nonvested stock units is recognized on a straight-line basis
over the vesting period, regardless of whether the market condition is
satisfied.
Certain restricted stock units vest immediately but are considered contingently
returnable as a result of certain service conditions. Compensation expense for
these types of restricted stock units are recognized on a straight-line basis
over the implied service period.
Derivatives
Foreign Exchange Currency Contracts
The Company operates in foreign countries, which exposes it to market risk
associated with foreign currency exchange rate fluctuations. The Company has
entered into certain forward contracts to hedge the risk of foreign currency
rate fluctuations. The Company has elected to apply the hedge accounting rules
in accordance with authoritative guidance for certain of these hedges.
The Company's primary objective is to hedge the variability in forecasted cash
flows due to the foreign currency risk. Various transactions that occur
primarily in Europe, Canada, South Korea, China, Hong Kong, and Mexico are
denominated in U.S. dollars, British pounds and Russian roubles and thus are
exposed to earnings risk as a result of exchange rate fluctuations when
converted to their functional currencies. These types of transactions include
U.S. dollar-denominated purchases of merchandise and U.S. dollar- and British
pound-denominated intercompany liabilities. In addition, certain operating
expenses, tax liabilities and pension-related liabilities are denominated in
Swiss francs and are exposed to earnings risk as a result of exchange rate
fluctuations when converted to the functional currency. Further, there are
certain real estate leases which are denominated in a currency other than the
functional currency of the respective entity that entered into the agreement
(primarily Swiss francs, Russian roubles and Polish zloty). As a result, the
Company may be exposed to volatility related to unrealized gains or losses on
the translation of present value of future lease payment obligations when
translated at the exchange rate as of a reporting period-end. The Company enters
into derivative financial instruments, including forward exchange currency
contracts, to offset some but not all of the exchange risk on certain of these
anticipated foreign currency transactions. Changes in the fair value of forward
contracts designated as cash flow hedges are recorded as a component of
accumulated other comprehensive income (expense) within stockholders' equity and
are recognized in cost of product sales in the period which approximates the
time the hedged merchandise inventory is sold or, if applicable, in other income
and expense in the period in which the hedged intercompany liability is
incurred.
Periodically, the Company may also use foreign exchange currency contracts to
hedge the translation and economic exposures related to its net investments in
certain of its international subsidiaries. Changes in the fair value of these
U.S. dollar forward contracts, designated as net investment hedges, are recorded
in foreign currency translation adjustment as a component of accumulated other
comprehensive income (loss) within stockholders' equity and are not recognized
in earnings (loss) until the sale or liquidation of the hedged net investment.
The Company also has foreign exchange currency contracts that are not designated
as hedging instruments for accounting purposes. Changes in fair value of foreign
exchange currency contracts not designated as hedging instruments are reported
in net earnings (loss) as part of other income (expense).
Interest Rate Swap Agreements
The Company is exposed to interest rate risk on its floating-rate debt. The
Company has entered into interest rate swap agreements to effectively convert
its floating-rate debt to a fixed-rate basis. The principal objective of these
contracts is to eliminate or reduce the variability of the cash flows in
interest payments associated with the Company's


                                       52
--------------------------------------------------------------------------------



floating-rate debt, thus reducing the impact of interest rate changes on future
interest payment cash flows. The Company has elected to apply the hedge
accounting rules in accordance with authoritative guidance for certain of these
contracts. Changes in the fair value of interest rate swap agreements designated
as cash flow hedges are recorded as a component of accumulated other
comprehensive income (loss) within stockholders' equity and are amortized to
interest expense over the term of the related debt.
Periodically, the Company may also enter into interest rate swap agreements that
are not designated as hedging instruments for accounting purposes. Changes in
the fair value of interest rate swap agreements not designated as hedging
instruments are reported in net earnings (loss) as part of other income
(expense).
Income Taxes
The Company adopted authoritative guidance which clarifies the accounting for
uncertainty in income taxes recognized in an enterprise's financial statements
and prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. For those benefits to be recognized, a tax
position must be more likely than not to be sustained upon examination by taxing
authorities. Guidance was also provided on derecognition, classification,
interest and penalties, accounting in interim periods, disclosure and
transition. The Company's continuing practice is to recognize interest and
penalties related to income tax matters in income tax expense. As required under
applicable accounting rules, the Company accrues an amount for its estimate of
additional income tax liability which the Company, more likely than not, will
incur as a result of the ultimate resolution of income tax audits ("uncertain
tax positions"). The Company reviews and updates the estimates used in the
accrual for uncertain tax positions, as appropriate, as more definitive
information or interpretations become available from taxing authorities, upon
completion of tax audits, upon receipt of assessments, upon expiration of
statutes of limitation, or upon occurrence of other events. The results of
operations and financial position for future periods could be impacted by
changes in assumptions or resolutions of tax audits.
Deferred tax assets and liabilities are determined based on differences between
financial reporting bases and tax bases of assets and liabilities and are
measured using the enacted tax rates expected to apply to taxable income in the
periods in which the deferred tax asset or liability is expected to be realized
or settled. Deferred tax assets are reduced by valuation allowances if we
believe it is more likely than not that some portion or the entire asset will
not be realized. The Company has historically considered the undistributed
earnings of its foreign subsidiaries to be indefinitely reinvested. As a result
of the Tax Reform, the Company had a substantial amount of previously taxed
earnings that could be distributed to the U.S. without additional U.S. taxation.
The Company continues to evaluate its plans for reinvestment or repatriation of
unremitted foreign earnings and regularly reviews its cash positions and
determination of permanent reinvestment of foreign earnings. If the Company
determines that all or a portion of such foreign earnings are no longer
indefinitely reinvested, it may be subject to additional foreign withholding
taxes and U.S. state income taxes, beyond the Tax Reform's one-time transition
tax. The Company intends to indefinitely reinvest the remaining earnings from
the Company's foreign subsidiaries for which a deferred tax liability has not
already been recorded.
Valuation of Goodwill, Intangible and Other Long-Lived Assets
The Company assesses the impairment of its long-lived assets (related primarily
to goodwill, property and equipment and operating right-of-use assets), which
requires the Company to make assumptions and judgments regarding the carrying
value of these assets on an annual basis, or more frequently if events or
changes in circumstances indicate that the assets might be impaired. For
goodwill, determination of impairment is made at the reporting unit level which
may be either an operating segment or one level below an operating segment if
discrete financial information is available. Two or more reporting units within
an operating segment may be aggregated for impairment testing if they have
similar economic characteristics. The Company has identified its Americas Retail
segment, its Americas Wholesale segment, its European wholesale and European
retail components of its Europe segment and its China retail component of its
Asia segment as reporting units for goodwill impairment testing. For long-lived
assets (other than goodwill), the majority relate to its retail operations which
consist primarily of regular retail and flagship locations. The Company
considers each individual regular retail location as an asset group for
impairment testing, which is the lowest level at which individual cash flows can
be identified. The asset group includes leasehold improvements, furniture,
fixtures and equipment, computer hardware and software, operating lease
right-of-use ("ROU") assets including lease acquisition costs, and certain
long-term security deposits, and excludes operating lease liabilities. The
Company reviews regular retail locations in penetrated markets for impairment
risk once the


                                       53

--------------------------------------------------------------------------------



locations have been opened for at least one year in their current condition, or
sooner as changes in circumstances require. The Company believes that waiting at
least one year allows a location to reach a maturity level where a more
comprehensive analysis of financial performance can be performed. The Company
evaluates impairment risk for regular retail locations in new markets, where the
Company is in the early stages of establishing its presence, once brand
awareness has been established. The Company also evaluates impairment risk for
retail locations that are expected to be closed in the foreseeable future. The
Company has flagship locations which are used as a regional marketing tool to
build brand awareness and promote the Company's current product. Impairment for
these locations is tested at a reporting unit level similar to goodwill since
they do not have separately identifiable cash flows.
An asset is considered to be impaired if the Company determines that the
carrying value may not be recoverable based upon its assessment of the asset's
ability to continue to generate earnings from operations and positive cash flow
in future periods or if significant changes in the Company's strategic business
objectives and utilization of the assets occurred. If the assets (other than
goodwill) are assessed to be recoverable, they are depreciated or amortized over
the periods benefited. If the assets are considered to be impaired, an
impairment charge is recognized representing the amount by which the carrying
value of the assets exceeds the fair value of those assets. The Company uses
market participant rents to calculate fair value of ROU assets and discounted
future cash flows of the asset group to quantify fair value for other long-lived
assets. The impairment loss calculations require management to apply judgment in
estimating future cash flows and the discount rates that reflect the risk
inherent in future cash flows. Future expected cash flows for assets in regular
retail locations are based on management's estimates of future cash flows, which
include sales and gross margin growth rate assumptions, over the remaining lease
period or expected life, if shorter. For expected location closures, the Company
will evaluate whether it is necessary to shorten the useful life for any of the
assets within the respective asset group. The Company will use this revised
useful life when estimating the asset group's future cash flows. The Company
considers historical trends, expected future business trends and other factors
when estimating the future cash flow for each regular retail location. The
Company also considers factors such as: the local environment for each regular
retail location, including mall traffic and competition; the Company's ability
to successfully implement strategic initiatives; and the ability to control
variable costs such as cost of sales and payroll and, in some cases, renegotiate
lease costs. If actual results are not consistent with the assumptions and
judgments used in estimating future cash flows and asset fair values, there may
be additional exposure to future impairment losses that could be material to the
Company's results of operations.
Pension Benefit Plan Actuarial Assumptions
The Company's pension obligations and related costs are calculated using
actuarial concepts, within the authoritative guidance framework. The Company
uses the corridor approach to amortize unrecognized actuarial gains or losses
over the average remaining service life of active participants. The life
expectancy, estimated retirement age, discount rate, estimated future
compensation and expected return on plan assets are important elements of
expense and/or liability measurement. These critical assumptions are evaluated
annually which enables expected future payments for benefits to be stated at
present value on the measurement date. If actual results are not consistent with
actuarial assumptions, the amounts recognized for the defined benefit plans
could change significantly. Refer to "Part IV. Financial Statements - Note 13 -
Defined Benefit Plans" in this Form 10-K for detail regarding the Company's
defined benefit plans.
Litigation Reserves
Estimated amounts for claims that are probable and can be reasonably estimated
are recorded as liabilities in the consolidated balance sheets. As additional
information becomes available, the Company assesses the potential liability
related to new claims and existing claims and revises estimates as appropriate.
As new claims arise or existing claims evolve, such revisions in estimates of
the potential liability could materially impact the results of operations and
financial position.
Convertible Senior Notes
In April 2019, the Company issued $300 million principal amount of 2.00%
convertible senior notes due 2024 (the "Notes") in a private offering.
Under GAAP, certain convertible debt instruments that may be settled in cash on
conversion are required to be separately accounted for as liability and equity
components of the instrument in a manner that reflects the issuer's
non-convertible debt borrowing rate. Accordingly, in accounting for the issuance
of the Notes, the Company separated


                                       54
--------------------------------------------------------------------------------



the Notes into liability and equity components. The liability component was
recorded at fair value, which was derived from a valuation technique used to
calculate the fair value of a similar liability without an associated
convertible feature. The carrying amount of the equity component, which is
recognized as a debt discount, represents the difference between the proceeds
from the issuance of the Notes and the fair value of the liability component of
the Notes. The excess of the principal amount of the liability component over
its carrying amount ("debt discount") will be amortized to interest expense
using an effective interest rate over the term of the Notes. The equity
component is not remeasured as long as it continues to meet the conditions for
equity classification.
In accounting for the debt issuance costs related to the issuance of the Notes,
the Company allocated the total amount incurred to the liability and equity
components based on their relative values. Debt issuance costs attributable to
the liability component were recorded as a contra-liability and are presented
net against the convertible senior notes balance on the Company's consolidated
balance sheets. These costs are amortized to interest expense using the
effective interest method over the term of the Notes. Refer to "Part IV.
Financial Statements - Note 10 - Convertible Senior Notes and Related
Transactions" in this Form 10-K for details on the Company's convertible senior
notes.
Recently Issued Accounting Guidance
See "Part IV. Financial Statements - Note 2 - New Accounting Guidance" in this
Form 10-K for disclosures about recently issued accounting guidance.
ITEM 7A.  Quantitative and Qualitative Disclosures About Market Risk.
Exchange Rate Risk
More than half of product sales and licensing revenue recorded for the year
ended February 1, 2020 were denominated in currencies other than the U.S.
dollar. The Company's primary exchange rate risk relates to operations in
Europe, Canada, South Korea, China, Hong Kong, and Mexico. Changes in currencies
affect our earnings in various ways. For further discussion on currency-related
risk, please refer to our risk factors under "Part I, Item 1A. Risk Factors."
Various transactions that occur primarily in Europe, Canada, South Korea, China,
Hong Kong, and Mexico are denominated in U.S. dollars, British pounds and
Russian roubles and thus are exposed to earnings risk as a result of exchange
rate fluctuations when converted to their functional currencies. These types of
transactions include U.S. dollar-denominated purchases of merchandise and U.S.
dollar- and British pound-denominated intercompany liabilities. In addition,
certain operating expenses, tax liabilities and pension-related liabilities are
denominated in Swiss francs and are exposed to earnings risk as a result of
exchange rate fluctuations when converted to the functional currency. Further,
there are certain real estate leases which are denominated in a currency other
than the functional currency of the respective entity that entered into the
agreement (primarily Swiss francs, Russian roubles and Polish zloty). As a
result, the Company may be exposed to volatility related to unrealized gains or
losses on the translation of present value of future lease payment obligations
when translated at the exchange rate as of a reporting period-end. The Company
is also subject to certain translation and economic exposures related to its net
investment in certain of its international subsidiaries. The Company enters into
derivative financial instruments to offset some but not all of its exchange
risk. In addition, some of the derivative contracts in place will create
volatility during the fiscal year as they are marked-to-market according to the
accounting rules and may result in revaluation gains or losses in different
periods from when the currency impact on the underlying transactions are
realized.
Foreign Exchange Currency Contracts Designated as Cash Flow Hedges
During fiscal 2020, the Company purchased U.S. dollar forward contracts in
Europe totaling US$150.6 million that were designated as cash flow hedges. As of
February 1, 2020, the Company had forward contracts outstanding for its European
operations of US$148.6 million to hedge forecasted merchandise purchases, which
are expected to mature over the next 17 months. The Company's derivative
financial instruments are recorded in its consolidated balance sheet at fair
value based on quoted market rates. Changes in the fair value of the U.S. dollar
forward contracts, designated as cash flow hedges for forecasted merchandise
purchases, are recorded as a component of accumulated other comprehensive income
(loss) within stockholders' equity and are recognized in cost of product sales
in the period which approximates the time the hedged merchandise inventory is
sold. Changes in the fair value of the U.S. dollar forward contracts, if any are
designated as cash flow hedges for forecasted intercompany royalties, are
recorded


                                       55
--------------------------------------------------------------------------------



as a component of accumulated other comprehensive income (loss) within
stockholders' equity and are recognized in other income (expense) in the period
in which the royalty expense is incurred.
As of February 1, 2020, accumulated other comprehensive income (loss) related to
foreign exchange currency contracts included a net unrealized gain of
approximately $6.6 million, net of tax, of which $5.9 million will be recognized
in cost of product sales over the following 12 months, at the then current
values on a pre-tax basis, which can be different than the current year-end
values. As of February 1, 2020, the net unrealized gain of the remaining open
forward contracts recorded in the Company's consolidated balance sheet was
approximately $4.0 million.
At February 2, 2019, the Company had forward contracts outstanding for its
European and Canadian operations of US$175.2 million and US$3.9 million,
respectively, that were designated as cash flow hedges. At February 2, 2019, the
net unrealized gain of these open forward contracts recorded in the Company's
consolidated balance sheet was approximately $4.0 million.
Foreign Exchange Currency Contracts Not Designated as Hedging Instruments
The Company also has foreign exchange currency contracts that are not designated
as hedging instruments for accounting purposes. Changes in fair value of foreign
exchange currency contracts not designated as hedging instruments are reported
in net earnings (loss) as part of other income (expense). For the year ended
February 1, 2020, the Company recorded a net gain of $1.3 million for its euro
dollar foreign currency contracts not designated as hedges, which has been
included in other income (expense). As of February 1, 2020, the Company had euro
foreign exchange currency contracts to purchase US$46.1 million expected to
mature over the next 16 months. As of February 1, 2020, the net unrealized gain
of these open forward contracts recorded in the Company's consolidated balance
sheet was approximately $0.9 million.
At February 2, 2019, the Company had euro foreign exchange currency contracts to
purchase US$8.2 million. At February 2, 2019, the net unrealized gain of these
open forward contracts recorded in the Company's consolidated balance sheet was
approximately $0.6 million.
Sensitivity Analysis
As of February 1, 2020, a sensitivity analysis of changes in foreign currencies
when measured against the U.S. dollar indicates that, if the U.S. dollar had
uniformly weakened by 10% against all of the U.S. dollar denominated foreign
exchange derivatives totaling US$194.7 million, the fair value of the
instruments would have decreased by $21.6 million. Conversely, if the U.S.
dollar uniformly strengthened by 10% against all of the U.S. dollar denominated
foreign exchange derivatives, the fair value of these instruments would have
increased by $17.7 million. Any resulting changes in the fair value of the
hedged instruments may be partially offset by changes in the fair value of
certain balance sheet positions (primarily U.S. dollar denominated liabilities
in our foreign operations) impacted by the change in the foreign currency rate.
The ability to reduce the exposure of currencies on earnings depends on the
magnitude of the derivatives compared to the balance sheet positions during each
reporting cycle.
Interest Rate Risk
The Company is exposed to interest rate risk on its floating-rate debt. The
Company has entered into interest rate swap agreements to effectively convert
its floating-rate debt to a fixed-rate basis. The principal objective of these
contracts is to eliminate or reduce the variability of the cash flows in
interest payments associated with the Company's floating-rate debt, thus
reducing the impact of interest rate changes on future interest payment cash
flows. The Company has elected to apply the hedge accounting rules in accordance
with authoritative guidance for certain of these contracts.
Interest Rate Swap Agreement Designated as Cash Flow Hedge
During fiscal 2017, the Company entered into an interest rate swap agreement
with a notional amount of $21.5 million, designated as a cash flow hedge, to
hedge the variability of cash flows in interest payments associated with the
Company's floating-rate debt. This interest rate swap agreement matures in
January 2026 and converts the nature of the Company's real estate secured term
loan from LIBOR floating-rate debt to fixed-rate debt, resulting in a swap fixed
rate of approximately 3.06%. The fair value of the interest rate swap agreement
is based upon inputs corroborated by observable market data. Changes in the fair
value of the interest rate swap agreement, designated as a cash flow hedge to
hedge the variability of cash flows in interest payments associated with the
Company's floating-rate debt,


                                       56
--------------------------------------------------------------------------------



are recorded as a component of accumulated other comprehensive income (loss)
within stockholders' equity and are amortized to interest expense over the term
of the related debt.
As of February 1, 2020, accumulated other comprehensive income (loss) related to
the interest rate swap agreement included a net unrealized loss of approximately
$0.3 million, net of tax, which will be recognized in interest expense after the
following 12 months, at the then current values on a pre-tax basis, which can be
different than the current year-end values. As of February 1, 2020, the net
unrealized loss of the interest rate swap recorded in the Company's consolidated
balance sheet was approximately $0.3 million.
At February 2, 2019, the net unrealized gain of the interest rate swap recorded
in the Company's consolidated balance sheet was approximately $1.0 million.
Sensitivity Analysis
As of February 1, 2020, the Company had indebtedness related to a real estate
secured term loan of $19.1 million and finance lease obligations of $16.5
million. The real estate secured loan is covered by a separate interest rate
swap agreement with a swap fixed interest rate of approximately 3.06% that
matures in January 2026. The interest rate swap agreement is designated as a
cash flow hedge and converts the nature of the Company's real estate secured
term loan from LIBOR floating-rate debt to fixed-rate debt. The finance lease
obligations are based on fixed interest rates derived from the respective
agreements.
The Company's remaining indebtedness is at variable rates of interest.
Accordingly, changes in interest rates would impact the Company's results of
operations in future periods. A 100 basis point increase in interest rates would
have had an insignificant effect on interest expense for the year ended February
1, 2020.
As of February 1, 2020, the Company also had borrowings under its short-term
borrowing arrangements of $4.0 million which are based on variable rates of
interest. Accordingly, changes in interest rates would impact the Company's
results of operations in future periods. A 100 basis point increase in interest
rates would not have a significant effect on interest expense for the year ended
February 1, 2020.
The fair values of the Company's debt instruments are based on the amount of
future cash flows associated with each instrument discounted using the Company's
incremental borrowing rate. As of February 1, 2020 and February 2, 2019, the
carrying value of all financial instruments was not materially different from
fair value, as the interest rates on the Company's debt approximated rates
currently available to the Company. The fair value of the Company's convertible
senior notes is determined based on inputs that are observable in the market and
have been classified as Level 2 in the fair value hierarchy.
Derivatives Designated as Hedging Instruments
The following table summarizes net after-tax activity related to the Company's
foreign exchange currency contracts and interest rate swap agreement designated
as cash flow hedges recorded in accumulated other comprehensive income (loss)
(in thousands):
                                                          Year Ended Feb 1,      Year Ended
                                                                2020             Feb 2, 2019
Beginning balance gain (loss)                            $        2,999

$ (14,369 ) Cumulative adjustment from adoption of new accounting guidance1

                                                         1,981                    -
Net gains from changes in cash flow hedges                        8,316     

10,962

Net (gains) losses reclassified to earnings                      (6,996 )              6,406
Ending balance gain                                      $        6,300        $       2,999

______________________________________________________________________

1 During the first quarter of fiscal 2020, the Company adopted new

authoritative guidance which eliminated the requirement to separately measure

and report ineffectiveness for instruments that qualify for hedge accounting

and generally requires that the entire change in the fair value of such

instruments ultimately be presented in the same line as the respective hedge

item. As a result, there is no interest component recognized for the

ineffective portion of instruments that qualify for hedge accounting, but

rather all changes in the fair value of such instruments are included in

other comprehensive income (loss) during fiscal 2020. Upon adoption of this

guidance, the Company reclassified $2.0 million in gains from retained

earnings to accumulated other comprehensive loss related to the previously

recorded interest component on outstanding instruments that qualified for

    hedge accounting.




                                       57

--------------------------------------------------------------------------------

© Edgar Online, source Glimpses